THE Bank of England has cut its UK growth forecasts sharply, unveiling the revised projections just days after the General Election.

In its latest quarterly inflation report, published yesterday, the Bank has cut its projection of UK gross domestic product growth in 2015 from 2.9 per cent to a below-trend 2.5 per cent.

And it now expects growth to be below the UK's long-term average annual rate in each of the following two years as well.

The Bank of England has cut its forecast of growth in 2016 from 2.9 per cent to 2.6 per cent, again adrift of the long-term average annual rate put by Bank of England Governor Mark Carney at about 2.75 per cent.

And the Bank has reduced its projection of UK economic expansion in 2017 from 2.7 per cent to 2.4 per cent.

The downgraded growth forecasts are an early blow for the Conservative Government. The Conservatives had put the economy at the heart of their General Election campaign.

Figures published late last month by the Office for National Statistics showed the UK economy grew by only 0.3 per cent quarter-on-quarter in the opening three months of this year. This was only half of an already below-trend rate of expansion of 0.6 per cent in the final quarter of 2014.

Mr Carney, who took up his post in summer 2013 after being hand-picked by Chancellor George Osborne, highlighted underlying weakness of productivity as he unveiled the reduced growth forecasts.

He said: "Productivity...is not something that monetary policy determines and, among the many uncertainties we face, the timing and extent of any prospective pick-up in productivity growth remains our most difficult judgment."

Lucy O'Carroll, chief economist at Aberdeen Asset Management, highlighted the detrimental impact of under-investment on productivity.

Business investment, even though it appeared to form a key plank of the Coalition Government's economic strategy, has proved very disappointing in recent years.

Ms O'Carroll said: "[The inflation] report should leave nobody in any doubt about the fundamental role of productivity growth in the UK economy's performance. The Bank of England has downgraded its growth outlook, and Mark Carney has put poor productivity right at the centre of the story. He may have put part of the productivity disappointment of recent years down to a disproportionate pick-up in low-productivity jobs, but he has also admitted that under-investment has played a role. He's right.

"The so-called productivity puzzle is more a child's jigsaw than advanced sudoku: if you're not investing enough, you won't produce enough. Carney also made it clear that improving UK productivity cannot be solely the Bank of England's responsibility - effectively handing the problem to companies and politicians."

Mr Carney signalled that the issue of the UK's continued membership of the European Union could be a significant factor in the Bank's future forecasting.

Prime Minister David Cameron has promised a referendum by 2017 on whether or not the UK should leave the European Union.

Mr Carney said of the proposed EU referendum: "We are looking at this and we will continue to look at this very closely because it could be an important determinant of the forecast. As, with time, there's greater clarity about the timing of the referendum, the question, the prospects, all those issues, as that starts to come into the public domain, it will be relevant."

He signalled the inflation outlook was little changed, in spite of the reduced growth forecasts.

Mr Carney said: "Overall, despite a moderately weaker outlook for demand growth relative to our February inflation report, a similarly weaker outlook for supply means we continue to expect a sufficient firming in inflationary pressures to return to target within two years."

Howard Archer, chief UK economist at consultancy IHS Global Insight, said of the outlook for borrowing costs: "We have long expected the Bank of England to start raising interest rates in February [next year].

"However, the Bank of England quarterly inflation report suggests that the first interest rate hike could well be delayed until nearer mid-2016."

Ms O'Carroll said: "Nothing has fundamentally changed the Bank's plan to raise interest rates - despite the weaker growth outlook. Mr Carney argued that the recent gyrations in bond markets should not have come as a surprise since, once we get beyond the three-year horizon, activity, inflation and interest rates should finally be returning towards post-crisis norms. In the short term, the Governor signalled that markets are about right in thinking rates will rise gradually from next year."

UK base rates have been at a record low of 0.5 per cent since March 2009.